2024 (8) TMI 796 - Board - SEBI

Collective Investment Scheme ( CIS ) - Scheme / arrangement operated through the Growpital platform - whether the Entities have prima facie violated any provisions of SEBI Act , CIS Regulations and SEBI -PFUTP Regulations - HELD THAT - Prima facie the instant scheme / arrangement offered / operated through the Growpital platform falls within the definition of CIS. The activities of Growpital, as brought out from the various materials described above, show that prima facie a CIS is being operated. However, no material is available on record to indicate that any of the Entities involved in the instant arrangement has formed a Collective Investment Management Company that has obtained a certificate under CIS Regulations. This prima facie leads to a conclusion that there is violation of Section 12(1B) of SEBI Act read with Regulation 3 of the CIS Regulations. Additionally, as brought out in the preceding paragraphs, over ₹132 crore has been mobilized through the Growpital platform in ZF Project 1 LLP alone. In fact, the website of Growpital had advertised that an amount in excess of ₹160 crore has been mobilized. The activity of illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on any collective investment scheme by any person also amounts to a fraudulent practice in terms of Regulation 4(2)(t) of PFUTP Regulations. Considering that no prior registration was obtained in the instant matter, the Growpital platform is being used to illegally mobilize funds from the public, which amounts to a fraudulent practice in terms of Regulation 4 (2) (t) of PFUTP Regulations. The amount of money, prima facie, observed to have been mobilized in the Growpital escrow account of over ₹ 184 crore, indicates the magnitude of the prospective threat of investors getting lured to the unregistered activities being carried out by the Entities. In light of the same, in order to ensure that additional funds are not mobilized through the Growpital platform under its scheme / arrangement / plans and to safeguard the assets acquired from the funds of the investing public until full facts and materials are brought out and final decision is taken in the matter, pending completion of the detailed examination initiated by SEBI, there is a need to pass an ad-interim ex-parte order to protect the interests of investors at large. Order by way of this ad interim ex-parte order, the following directions - Growpital and the directors / designated partners are directed i. To cease and desist from floating any CIS, directly or indirectly, and cease to solicit or undertake such activity determined as CIS, in any manner whatsoever, until further orders. ii. Not to collect any money from new partners / investors or any additional sum of money from existing partners / investors in existing schemes / plans, until further orders. iii. Not to divert any funds collected from partners / investors, kept in bank account(s), payment wallets and/or in their custody, until further orders. iv. Not to dispose of or alienate any assets, whether movable or immovable, or any interest or investment or charge on any of such assets including moneys lying in bank accounts belonging to the Entities, except with the prior permission of SEBI, until further orders. v. To provide a full inventory of all the assets held by them, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, demat accounts and mutual fund investments, immediately, but not later than 15 working days from the date of receipt of this order. vi. To immediately withdraw and remove all websites, advertisements, representations, literatures, brochures, materials, publications, documents, communications, etc. in relation to the unregistered CIS activities or any other unregistered activity in the securities market, until further orders. vii. Not to access the securities market and buy, sell or otherwise deal in securities in any manner whatsoever, directly or indirectly, until further orders. viii. To submit the details of partners / investors (contact number, address, date of enrolment) who have contributed to the ZF Project LLPs (now or in the past) through Growpital or any other platform and to submit details of contributions received from each such partner / investor immediately, but not later than 15 working days from the date of receipt of this order. If the aforementioned entities have any open positions in any exchange traded derivative contracts, as on the date of the order, they can close out / square off such open positions within 3 months from the date of order or at the expiry of such contracts, whichever is earlier. Further, the aforesaid entities are permitted to settle the pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order. Cashfree Payments India Private Limited is directed not to accept any payments made through Growpital or on behalf of Growpital. Further, no funds shall be transferred to the escrow account of Farm Silo Tech LLP / Growpital until further orders. Banks, depositories and Registrar and Transfer Agents are directed to freeze the bank accounts, demat accounts belonging to the Entities and not to allow transfer or redemption of securities of the Entities named in paragraph 27.1. The Order shall be sent to all the Entities, Market Infrastructure Institutions, Banks and Registrar and Transfer Agents to ensure compliance with the directions.

Summary

Issues Involved:
1. Whether the scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (CIS).
2. Whether the Entities have prima facie violated any provisions of the SEBI Act, CIS Regulations, and PFUTP Regulations.
3. Who all are responsible for the violations.
4. Whether urgent directions need to be issued against those responsible for the prima facie violations.

Issue-wise Detailed Analysis:

Issue A: Whether the scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (CIS)?

Analysis:

1. Nature of the Scheme:
- Growpital offers fixed tax-free profits ranging from 11-14% through investments in the agriculture sector.
- Investors become partners in an LLP, with their investments treated as capital contributions to the LLP.
- The funds are pooled and utilized for agricultural projects, and investors are promised assured returns.

2. Pooling of Contributions:
- The contributions from investors are pooled and used for agricultural projects.
- The LLP agreements facilitate easy entry and exit of investors, indicating an open-ended scheme.

3. Assured Returns:
- The website and YouTube videos claim guaranteed returns, which are distributed as per the consent letters signed by the investors.
- The LLP agreements state that profits are distributed to partners as per mutually agreed terms, with losses covered by the designated partners.

4. Management of Investments:
- The designated partners manage the funds and operations on behalf of the investors, who do not have day-to-day control over the scheme.
- The investors authorize Farm Silo Tech LLP to perform various functions on their behalf, including signing and executing LLP agreements.

5. Legal Framework:
- The scheme satisfies the four conditions mentioned in Section 11AA(2) of the SEBI Act, indicating it is a CIS.
- The scheme does not fall under any exceptions mentioned in Section 11AA(3) of the SEBI Act.

Conclusion:
The scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (CIS).

Issue B: Whether the Entities have prima facie violated any provisions of SEBI Act, CIS Regulations, and PFUTP Regulations?

Analysis:

1. Violation of SEBI Act and CIS Regulations:
- Section 12(1B) of the SEBI Act requires registration to sponsor or carry on a CIS.
- Regulation 3 of CIS Regulations mandates that only a registered Collective Investment Management Company can carry on or sponsor a CIS.
- The Entities have not obtained the necessary registration, leading to a prima facie violation of Section 12(1B) of SEBI Act and Regulation 3 of CIS Regulations.

2. Fraudulent Practice under PFUTP Regulations:
- The illegal mobilization of funds through an unregistered CIS amounts to a fraudulent practice under Regulation 4(2)(t) of PFUTP Regulations.

Conclusion:
The Entities have prima facie violated the provisions of the SEBI Act, CIS Regulations, and PFUTP Regulations.

Issue C: Who all are responsible for the violations?

Analysis:

1. Involvement of Entities:
- The funds are transacted through the bank accounts of Farm Silo Tech LLP and the three ZF Project LLPs.
- Yotta Agro Ventures Private Limited and Farm Silo Tech LLP are the designated partners of ZF Project 1 LLP.

2. Designated Partners and Directors:
- Ms. Gayatri Rinwa and Mr. Krishna Sharma are the designated partners in ZF Project 2 LLP and ZF Project 3 LLP.
- Mr. Rituraj Sharma and Ms. Gayatri Rinwa are designated partners in Farm Silo Tech LLP.
- Mr. Rituraj Sharma and Mr. Krishna Sharma are directors in Yotta Agro Ventures Private Limited.

3. Liability under SEBI Act:
- Section 27(1) of SEBI Act holds the designated partners/directors liable for the contraventions committed by the LLPs.
- The designated partners are responsible for the conduct of the business/affairs of the LLPs and are thus liable for the violations.

Conclusion:
Mr. Rituraj Sharma, Ms. Gayatri Rinwa, and Mr. Krishna Sharma are prima facie liable for the activities undertaken through the Growpital platform.

Issue D: Whether urgent directions need to be issued against those responsible for the prima facie violations?

Analysis:

1. Investor Protection:
- The CIS Regulations aim to protect investors by ensuring transparency and proper management of funds.
- The increasing trend in fund collection and extensive social media activity indicate a significant threat to investors.

2. Immediate Action Required:
- To prevent further illegal mobilization of funds and protect investors, urgent directions are necessary.
- An ex-parte ad interim order is required to cease the unregistered CIS activities and safeguard the assets acquired from investor funds.

Conclusion:
Urgent directions need to be issued to protect the interests of investors and prevent further illegal activities.

Order:

1. Cease and Desist:
- Farm Tech Silo LLP (Growpital), ZF Project LLP 1, ZF Project LLP 2, ZF Project LLP 3, Yotta Agro Venture Private Limited, and the directors/designated partners are directed to cease and desist from floating any CIS and collecting money from investors.

2. Freeze Assets:
- The entities are directed not to dispose of or alienate any assets and to provide a full inventory of all assets held by them.

3. Withdraw Advertisements:
- The entities must immediately withdraw all advertisements and representations related to the unregistered CIS activities.

4. Market Restrictions:
- The entities are prohibited from accessing the securities market and dealing in securities.

5. Compliance and Reporting:
- The entities must submit details of partners/investors and contributions received within 15 working days.

6. Freezing of Accounts:
- Banks, depositories, and RTAs are directed to freeze the bank accounts and demat accounts belonging to the entities.

7. Communication:
- The order shall be sent to all relevant entities and authorities to ensure compliance.

8. Opportunity for Hearing:
- The entities may file their reply/objections within 21 days and indicate if they desire a personal hearing.

9. Further Action:
- The order is without prejudice to SEBI's right to take any other action in accordance with the law.

10. Immediate Effect:
- The directions shall take effect immediately and remain in force until further orders.